Russian efforts to have Belarus to ship oil product exports via Russian ports rather than through Latvia and Lithuania are unlikely to be successful for cost reasons, as Belarus seeks other export opportunities, including through a planned product pipeline to the southwest, officials have said.

Belarus is almost entirely dependent on Russia to supply crude oil to its two refineries, at Mozyr in the south and Novopolotsk in the north, which it buys at favorable rates.

Wider tensions have periodically disrupted supplies however, and Russia sharply reduced crude deliveries to Belarus last year, before a deal was reached to resolve the issue this April.

At a conference in Minsk, the acting director general of state-owned Belarusian Oil Company (Beloil), Sergei Grib, said a 50% discount offered by Russia as an inducement to Belarus to ship oil products from its refineries through Russian ports in the Gulf of Finland was still not competitive with costs through Latvia and Lithuania.

Belarus is giving buyers the option to receive products at the Russian port of Ust-Luga, but “the 50% discount they gave us still doesn’t cover the cost of railway shipment. In addition, Russia has very high trans-shipment costs by comparison with the Baltic ports,” Grib told S&P Global Platts.

Grib said the distance from Belarus’ northern refinery, Naftan, to Ust-Luga, at 800 km (496 miles), is double that to the Latvian port of Riga.

He said Belarus also continued using an oil product pipeline to ship 50 ppm “Euro IV” diesel to the Latvian port of Ventspils, with deliveries in both August and September. Russia has repeatedly said it will stop using the same export pipeline to Latvia, which it partly owns.

Belarus is also discussing the construction of a product pipeline from its southern refinery at Mozyr to the southwestern city of Brest, near the Polish and Ukrainian borders, enabling it to diversify exports and better cope with a threat to its position in the Ukrainian market.

Belarus currently supplies about 10% of Poland’s diesel imports, but Poland’s state-controlled PKN Orlen has said it is keen to increase cooperation with Belarus as it looks to meet domestic demand and increase supplies to Germany.

“We expect that in the near future exports to Poland, the Czech Republic and Slovakia will only increase and our share will increase,” Grib told the conference.

Vladimir Sizov, deputy general director of the Mozyr refinery, told Platts the proposed pipeline from Mozyr to Brest was likely to cost $100 million to build and was a “real” possibility, but declined to elaborate on the progress of discussions.

Belarus’ Mozyr is a major supplier of auto and aviation fuel to Ukraine, which lies a short distance to the south. Belarus currently holds a 51% share of the Ukrainian diesel market, according to Beloil.

But analysts argue that without slashing its prices, particularly for diesel, Belarus will struggle to hold onto its share of the Ukrainian market in the face of redoubled efforts by Russian suppliers to win back market share after disruptions relating to the conflict in eastern Ukraine.

RUSSIAN COMPETITION

A Russian oil product pipeline is currently supplying 200,000 mt a month of fuel to Ukraine, supported by aggressive efforts by Russian distribution companies in Ukraine, and this volume could increase unless Belarus drops its prices, Sergei Kuyun, director of Ukrainian fuels consultancy A95, said.

In addition, Ukraine’s main refinery, Kremenchug, is unlikely to remain in its current parlous state, processing just 2.2 million mt of crude a year, compared with a nameplate capacity of 7 million mt, Kuyun said.

The refinery, which is receiving 80,000 mt of Azeri crude a month, shipped across the Black Sea, and also uses Iranian condensate, has received little investment due to a conflict between its part-owner, Ihor Kolomoyskiy, a powerful former regional governor, and the Ukrainian government.

“They will gradually solve the problem. They will be forced to do something, because otherwise the refinery won’t be able to maintain processing even at current levels,” Kuyun told Platts.

“Kremenchug can’t process a lot of Iranian condensate and make a lot of quality fuel from it, so they’ll have do something,” he added.

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